Highlights
- As discussed in a previous Holland & Knight alert, courts take various approaches when considering the enforceability of mandatory class-action waivers and arbitration provisions contained in Employee Retirement Income Security Act of 1974 (ERISA) plans.
- Recent decisions show that courts remain split on key issues including the interpretation of the U.S. Supreme Court's decision in LaRue v. DeWolff, Boberg & Assoc. who must/can consent to a plan amendment, and the applicability and application of the "effective vindication" doctrine.
- Recent court decisions in the Seventh Circuit, as well as Delaware, New York, and Florida district courts have reached different results, and for different reasons.
Courts around the country continue to approach the enforceability of class-action waivers and arbitration provisions in ERISA plan documents differently. This alert discusses recent decisions addressing these issues in ERISA litigation as district courts evaluate the enforceability of arbitration provisions and class-action waivers against plan participants
Finding a Mandatory Class-Action Waiver and Arbitration Provision Unenforceable
In Smith v. Brd. of Dirs. of Triad Mfg., Inc., 13 F.4th 613, 615 (7th Cir. 2021), the Seventh Circuit evaluated whether an arbitration and class-action waiver provision that provides "[a]ll Covered Claims must be brought solely in the Claimant's individual capacity and not in a representative capacity or on a class, collective, or group basis[,]" and that the "Claimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary or other relief to any Eligible Employee, Participant or Beneficiary other than Claimant" is enforceable against a participant asserting ERISA ' 502(a)(2) claims. Id. (emphasis added)
In rendering its decision that this specific provision is problematic, the Seventh Circuit observed that individual arbitration is not incompatible with ERISA: "Because Smith participated in a defined contribution plan, LaRue ... governs, and the [Supreme] Court made clear in LaRue that [ERISA 502(a)] 'authorize[s] recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account.'" Id. at 622 (citing LaRue, 552 U.S. at 256). Therefore, the narrow issue in Smith was whether the specific arbitration provision at issue conflicted with ERISA. The court found that the clause "Claimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary or other relief to any Eligible Employee, Participant or Beneficiary other than Claimant" was problematic as it could arguably bar the award of any injunctive relief (i.e., removal of a fiduciary) that is specifically allowed under ERISA even in a single-plaintiff case. Based on the Seventh Circuit's reasoning, it appears the arbitration clause would have been fully enforceable had the highlighted phrase "or other relief" been left out of the...
